The US Dollar advanced overnight as Asian stocks declined, boosting demand for the go-to safe haven currency. The MSCI Asia Pacific regional benchmark equities index fell 0.9 percent after official Chinese Manufacturing PMI figures showed the pace of factory-sector growth slowed to the weakest in five months in May. Yesterday’s disappointing US economic data set compounded the risk-off mood amid deteriorating demand expectations from Asia’s top export market. The stocks-linkedAustralian Dollar bore the brunt of the selloff, sliding as much as 0.6 percent against its top counterparts.

The spotlight now turns to European manufacturing data, with final revisions of May’s Eurozone PMIs as well as the UK PMI reading on tap. The region-wide gauge for the single currency bloc is expected to confirm early estimates showing the manufacturing sector shrank at the fastest pace in nearly three years. Meanwhile the UK reading is set to reveal that factory-sector activity shrank for the first time in five months. Swiss PMI rounds out the docket, and here too expectations point to contraction (albeit at slightly slower pace in May than the prior month).

On balance, the day’s offering of US economic data ought to prove most market-moving however. The closely-watched US Employment report is forecast to show the world’s top economy added 150,000 jobs in May, marking a narrow improvement after the six-month low of 115,000 recorded in April. In a rare scheduling change, the likewise market-moving ISM Manufacturing gauge will be released on the same day, though forecasts here point to a softer print in May compared with the previous month. Besides almost certainly making for a sharp pickup in volatility, the figures will help establish near-term expectations for the likelihood that a firmer recovery in the US will to some extent offset headwinds to global output from Europe and Asia.

As we argued earlier, a broadly supportive US data outing stands to boost risk appetite and help drive a corrective recovery in stocks-linked currencies. Such an outcome may also weigh on the Japanese Yen against the greenback as expectations of a third round of quantitative easing from the Federal Reserve (QE3) are scattered. If this dynamic holds, an overall negative data mix is likely to produce the opposite results. On the other hand, disappointing results may also be interpreted to increase the chance for further Fed stimulus, driving the Dollar lower. Interestingly, the likes of the Euro and the British Poundmay not participate even in the event that risk sentiment recovers.